by Zach Carter, TMC MediaWire Blogger
While the national economy struggles under the weight of a massive bank bailout effort, the banking lobby's ability to influence public policy is more problematic than ever. The too-big-to-fail bankers may be dependent on U.S. taxpayers for their survival, but corporate lobbyists still have members of Congress, the Treasury Department and the Federal Reserve asking the banks' permission to bring the Big Finance behemoths under control. The relationship between Wall Street and the government is so out of whack that it's difficult to distinguish the political players from the panhandlers.
In Mother Jones, Daniel Schulman and Jonathan Stein detail the ease with which important congressional staff switch careers and move into the banking sector. In recent years, dozens of key staffers for powerful Senators have left the political arena to work for as lobbyists for the financial sector, and policy gurus from both sides of the aisle are jumping ship for lucrative careers as influence peddlers on Wall Street.
"Financial firms seeking big bucks and favorable terms from Congress and the White House are deploying Capitol Hill aides turned lobbyists to win favorable treatment from the congressional lawmakers," Schulman and Stein write. Many lawmakers, including Senate Banking Committee Chairman Chris Dodd, D-Conn., are refusing to disclose whether they've had contact with former staff who now work for Wall Street. Small surprise, then, that so many of the recent bailout packages have allowed failed bank CEOs to stay in power and saved their shareholders from bad investments in inept, even predatory, companies.
Sometimes these reinvented bank defenders are even former Senators. Susan Douglas of In These Times highlights the career of former Sen. Phil Gramm, R-Texas, who is currently a lobbyist for UBS. The Swiss banking giant has been plagued by a seemingly endless stream of scandals over the past year, for everything from diamond smuggling to tax fraud. And Gramm helped push for looser predatory lending laws—including those pertaining to the now-decimated mortgage sector—while he on the UBS payroll.
This would be a shameful legacy for any former public servant, but for Gramm, Douglas notes, this behavior is particularly disgraceful: his two chief legislative "accomplishments" helped create and intensify the current financial crisis. Gramm co-authored the Gramm-Leach-Bliley Act of 1999, which compounded the financial world's too-big-to-fail problem by letting traditional commercial lenders like Bank of America and Citigroup buy up riskier, unregulated investment banks like Merrill Lynch. Gramm then pushed the Commodity Futures Modernization Act of 2000 through in a midnight budget amendment, a tactic which made sure that "credit default swaps" were not subject to either securities regulations or gambling laws. Just eight years later, credit default swap gambling destroyed insurance giant AIG, to the dismay of taxpayers everywhere.
When lawmakers stop cowing to the bank lobby and start answering to their constituents, the result is a big boost for the entire economy. Last week, committees in both the House and Senate dealt the credit card industry a rare defeat by approving bills that crack down on abusive credit card billing practices. Even though Sen. Dodd insists keeping his lobbying contacts a mystery, he is capable of crafting responsible legislation. The bills were introduced by Dodd and Rep. Carolyn Maloney, D-N.Y., but still face major uphill battles clearing the full House and Senate.
As Harry Hanbury details for the American News Project, conservative lawmakers and bank lobbyists are already hard at work watering down the legislative language to ensure that it will not actually curb any abuses if enacted.
The bills would ban dozens of billing gimmicks that are as outrageous as they are common, including raising interest rates on credit card debt after it has been accumulated and hiking rates due to completely unrelated activity, like returning a library book late. The banking industry deploys a lot of clever words to mask the predation inherent in the tactics, and most common of all are the terms "price according to risk" and "risk-based pricing." These phrases make it sound as if all the poor little credit card companies want to do is set interest rates at levels appropriate for a borrower's credit profile. Of course, that's not what's actually happening: lenders are radically changing the terms of loan agreements for no other purpose than to gouge borrowers, and give borrowers no say in what happens.
It's crazy that banks are legally permitted to raise interest rates on cardholders after they have charged debt to their credit card. If you pay full price for anything else—a shirt, a bag of groceries, a guitar—it would be laughable if the shop clerk demanded more money from you months later.
Banker apologists insist that banning these practices will restrict the flow of credit. But more credit cards will not fix a problem caused by massively over-indebted consumers. We need higher wages, not a fresh flood of predatory, high-interest debt.
But if taxpayers can win on credit cards, we can win on the bailout, too. Yes! Executive Editor Sarah van Gelder posted an open letter to President Barack Obama this week, citing half a dozen economic experts and urging him to change his bailout strategy before it's too late. "Watching your appointees' latest bank bailout makes me wonder if all your administration's good work on health care, education, and jobs will be swept away by the extraordinary giveaway of trillions in taxpayer money to a group of powerful Wall Street operatives," van Gelder writes.
And indeed, in other arenas of economic policy, the president has made significant steps in the right direction. While Obama's proposed federal budget is less than perfect, it moves away from some of the worst trends of the past eight years. GritTV's Laura Flanders details some of this progress in a roundtable discussion with Irasema Garza, President of Legal Momentum, former New York Times reporter David Cay Johnston, and New York City Coalition Against Hunger Director Joel Berg. By implementing robust job creation plans and a massive increase in anti-hunger and nutrition programs, Obama has signaled that the plight of those hardest hit by the recession cannot simply be ignored.
But these positive budget strides do not involve the banking lobby, which still maintains a stranglehold on any realm of U.S. public policy it can loot for a profit. Obama standing up to the financiers is not an improbable pipe dream, it's a prerequisite for economic recovery and a necessary step toward rebuilding the integrity of our democracy.
This post features links to the best independent, progressive reporting about the economy.
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